I don?t normally write much on economics, largely because I think its one step above fortune telling?maybe. You look into the tea leaves (?economic data?), sift it around a bit and make predictions about what you think is happening and more particularly, about what you think WILL happen.. Hence the fortune telling analogy.
So why am I sticking my hand into this hornets nest of omniscience? Mostly because I write about personal finance, and I?m of the opinion that personal finance without some concept of economics is akin to taking off in an airplane without radar. How do you know what to prepare for if you have no concept of what it is you?re heading into?
Even though my crystal ball is still malfunctioning, I figure I?ll take a stab at what I think is happening in the economy and where I think we?re heading. Heck, even without it I doubt I can do a more laughable job than the people who do it professionally, also known as ?economists?.
Warning: this won?t be light reading?and for some, it won?t be at all pleasant.
What I think is happening
We?ve had economic problems in the past, many of them in fact, but I think most of us have an idea that there?s something different happening this time, something more ominous. My experience is that when the ?little voice inside? is telling you something is wrong, it usually is. Here?s what I dare to think it is?
At the risk of sounding simplistic, we?re now experiencing the end of the Age of Bigness. Sounds goofy, I know, but please read through before dismissing it.
The end of the Age of Bigness is the flip side of the Industrial Revolution. When industrialization began, the apparatus for growing systems – let?s call them mega-systems – began to develop and spread throughout the industrialized world. Once started, they could leverage people, capital and resources in a way that enabled them to go on permanent growth trajectories. Consider the following:
Big Government. Up until about 150 years ago, government was little more than a monarch of some sort, his ruling council and a small army that could grow only during war. Today we have all-encompassing government which not only makes laws and maintains national defense, but also provides cradle to grave benefits for the populace and is somehow involved in nearly every aspect of our lives right down to the most personal level.
Big Business. For thousands of years the economy of the world was based on cottage industry and family farms. Today we have conglomerates with operations in dozens of countries but loyal to none of them.
Big Education. Not even 100 years ago, one room school houses were the backbone of education, and career training was based on the apprentice system. Today we have statewide public school systems and university systems with multiple campuses and tens of thousands of students.
Big Media. Until radio came out in the early 1900s, the only trace of the media was the local independent newspaper. Before that it was gossip and the town crier. Today, not only do we have radio and TV, but most of it is joined in media conglomerates with global reach.
Big Healthcare. Long gone is the witch doctor or high priest, or even the country doctor. And increasingly, so is the local general practitioner. They?ve been replaced by expansive healthcare systems run as Big Business. The patient is sent from specialist to specialist, rarely having more than a few minutes with any.
These are just the most prominent examples of the modern age trend toward bigness, but there are others. Each provides certain benefits to the population, but the cost of maintaining the systems themselves is now exceeding those benefits. The de facto evidence is found in the perpetual rise in prices and the need to use debt to keep them afloat.
That system of bigness, I believe, is coming to an end and represents the source of the dislocations we?re now seeing and trying to deal with.
Evidence of mega-system failure at all levels is all around us. Consider the following:
- National governments are existing in a state of perpetual deficit – in the US alone, more than 25% of the federal budget is ?funded? by borrowing.
- Local governments have turned to police citations to fund operations.
- Big healthcare runs almost entirely on government and private health insurance plans (as opposed to cash payments) which now carry premiums the size of house payments; tens of millions are going without them for lack of ability to pay.
- Virtually the entire pension system in the US, both public and private, is facing a massive funding crisis.
- The university system, which has exploded in size and scope, is funded largely by student debt that can leave the student with a six figure liability upon graduation.
- The value of any system is in its simplicity, but mega-systems have become increasingly complex, often requiring thick manuals or the hiring of lawyers to navigate.
- Most debate in regard to the various mega-systems centers not on improving them, but in keeping them afloat!
Far from being synergistic, maintaining The System is now both cumbersome and prohibitively expensive. Not only are the various sub-systems straining to keep themselves afloat, but the citizenry is struggling to comply with supporting them.
The Industrial Revolution-inspired model of increasingly large systems that facilitated growth for a century and a half is broken. ?The System? can no longer fix itself and is an obstacle to progress. The System is now in survival mode.
Where I think this will lead
There might be a temptation to consider this as a bad news assessment, and while it is in the near term, I think it will ultimately lead to a better place.
We went from ?smallness? to bigness during and since the Industrial Revolution, and now we?re likely to return back to smallness. Cottage industry, in the form of at-home self-employment will gradually replace big employment centers, as nearly anything done in a large organization can be done by a one man or woman shop from home and done at less cost.
The at home revolution will force more self-reliance and reliance on local community – where it had been for most of human history. Meanwhile, technology – the magic bullet many expect to solve our biggest problems within the scope of The System?far from fixing it, will hasten it?s end.
Consider what technology is doing and what we can reasonably expect it to do in the near future:
- Computers and the Internet – These technologies are already here and having a major impact moving into the world I?m describing. They have taken commerce out of the ivory tower and put it back in the home, launching a revolution in the modern equivalent of cottage industry.
- Electric cars – We?re not quite there yet, but we?re on our way. This has been talked about for 30 years but it?s finally hitting the scene for real. Current batteries for all-electric cars can?t sustain 100 mile charges now but they?re improving quickly. When a battery that can go 200+ miles between charges arrives for real it will break big oil and it?s monopoly on motor fuel, and empower the individual.
- Renewable energy – wind and solar – Again, we?re getting to the point where renewables will be cheap enough to compete with fossil fuels, and once that happens in earnest, utility monopolies will be broken and individuals will be empowered.
Consider the combination of electric cars with renewable energy generated from at-home solar panels or windmills serving as the power source; now combine this with the income generating capability that computers and the internet afford. All will enhance individual economic, political and personal freedom, but the decentralization will prove crippling to The System.
How things are likely to play out between now and then
It would be a massive advantage if we could jump from where we are now – with an anemic and declining economy – to the future I just described – but it won?t happen that way and that?s where things are likely to get a lot worse than they are now. Here is what we?re likely to see play out between now and the better future:
- System based debt structures are already unsustainable but will be even more so in a decentralized economy and will have to unravel; the meltdown since 2007 was probably the start of a process that?s likely to get much worse.
- The System can be fully expected to dig in and resist its own destruction. Collectively, the majority will continue to look to The System for salvation – to their own peril.
- Massive economic dislocation and disenfranchisement will occur as the unraveling of The System moves more quickly than the shift to individual reliance.
- One man/one job will be coming to an end as income from traditional jobs continues to erode and workers are forced into involuntary self-employment and the pursuit of multiple income streams.
- Contrary to popular belief and in spite of populist speeches by politicians, the state will resist – not facilitate change. Big systems are far easier to tax and to regulate than an economy based on tens of millions of self-employed individuals.
- Government budget issues are likely to get worse, even much worse, as change moves through the economy.
- Colleges and universities will be unable to provide educations relevant to a decentralized economy that runs on millions of unique businesses. Nor will they be able to compete with online training that will be only a fraction of the cost. Meanwhile The System has abandoned training or retraining. Self-study will become the preferred route to ?higher education?.
Most of these aren?t even a stretch – we?re already seeing them play out to one degree or another. This is just a matter of projecting current trends out to their logical extremes.
This is a time for neither blind optimism nor gloom and doom, but openness to change, flexibility, and a willingness to grow and take chances. Specific strategies are difficult to project since the situation is in a state of flux. But going forward, strategies that will attempt to work in this direction will make up much of the content on this website.
My suggestion is to look closely into moving into some form of self-employment, as it is increasingly becoming the best long-term solution to a career crisis. Try to build your business as a side business, that way you will reduce the risk and give yourself as much time as you need to make it work. The ability to make a living without having a traditional job may be the key to survival in the future.
What do you think? Do you see any of this playing out? Do you see things going in a radically different direction? Or do you think that The System will ultimately cure itself and keep us on a more traditional path?
Can you offer any strategies to help us deal with these changes? If you?d like to write a post, either challenging my predictions, supporting them or proposing strategies, feel free to contact me at kevin (at) outofyourrut (dot) net and I?ll publish it.